LATAM WRAP-Brazilian bonds bounce back on improved sentiment

Paul Kilby

4 MIN. DE LECTURA

NEW YORK, Oct 22 (IFR) - Brazilian credits were making a comeback on Thursday as positive investor sentiment spurred by the prospects of more monetary easing in Europe spilled over into LatAm credit markets.

Brazilian bonds prices were largely inching up as they followed the more substantial rally in the country’s equity market, where the Ibovespa index was up about 1.59%.

Fixed-income investors largely shrugged off weak quarterly results at Brazilian miner Vale, which suffered a net loss of US$2.1bn in the third quarter due to depressed commodity prices and a weak Real.

“They are lowering their costs and leverage,” said a New York based trader, explaining the resiliency of the company’s bond prices. “They are doing a good job in mitigating losses.”

The company’s curve was 1-2bp tighter earlier in the session, with the 2022s and 2042s being respectively quoted at 413bp-403bp and 543bp-533bp.

The Brazilian sovereign was also taking back losses on Thursday despite news about further slippage in the government’s fiscal targets.

The sovereign’s 2025s were up close to a point on Thursday to trade at mid-market price of 87.50, according to Thomson Reuters data.

“Economic news in Brazil is irrelevant,” said Klaus Spielkamp, head of fixed-income sales at Bulltick. “People are waiting on the development of the impeachment (process). It is all political.”

Still, analysts are warning that Brazilian sovereign debt is likely to suffer from a bout of forced selling among high-grade accounts if a second rating agency demotes it to junk.

This is expected to happen in the first half of next year, now that S&P has cut the country’s to BB- and Fitch has a negative outlook on its BBB- rating.

The sell-off, however, is likely to be less acute than the unwinding of Petrobras positions last month, said Barclays in a note today.

“Data on positioning seem to indicate that IG crossover investors are positioned much lighter in the Brazil sovereign than they were in Petrobras,” the bank said.

While the bank calculates that high-grade index players could be forced to unload about US$5.2bn in sovereign debt, global high-yield funds as well as EM funds and brokers are likely to absorb a good portion of that.

Barclays estimates that the potential net selling of sovereign debt would be around US$1.4bn versus about US$4bn for Petrobras.

PIPELINE Mexican development bank NAFIN will kick off roadshows this week as it looks to market a 144A/Reg S Green bond to international investors through leads Bank of America Merrill Lynch, Credit Agricole and Daiwa.

The state-owned bank will be in Los Angeles and New York areas on Thursday and move to San Francisco and Boston on Friday. It is expected to be rated A3/BBB+ (Moody‘s/Fitch).

Peru (A3/BBB+/BBB+) appointed BBVA, BNP Paribas and JP Morgan to arrange investor meetings in Europe from October 20 to update on the country’s financing program and discuss developments in the economy. A potential transaction may follow.

Terrafina, another Mexican REIT, has finished meeting accounts as it markets a potential US$400m-$500m bond offering. The borrower mandated Barclays and Citigroup as lead managers, with Itau as co-manager. Expected ratings are Baa3/BBB-.